Arcus Biosciences, Inc. (RCUS) Earnings Call Transcript & Summary

So thanks for joining us, everyone. I'm Terence Flynn, the U.S. Biopharma Analyst at Morgan Stanley. Appreciate the opportunity to host Arcus this afternoon. We have Terry Rosen, the company's CEO; and Jen Jarrett, the company's COO. Just before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. Well, thanks so much for making the trip out here to the East Coast. Appreciate the time today. I want to start off just on the -- one of the pipeline assets that, again, we're expecting to see some more data out later this fall as AB521. I'll use that because I can't pronounce the drug name, but your HIF-2 alpha Inhibitor. Maybe just help set the stage for us here as we think about the likely upcoming presentation here in the fall?

Thanks. So thanks, Terence, for inviting us. Thank to all of you here in listening. And so casdatifan our HIF-2 Inhibitor, also known as AB521, we also call cas. We've got a really exciting data set that will be coming later this year. We just found out it was accepted as an oral presentation. So we just can't say where yet, but at least we have that under our belt. In terms of what to expect, for those of you who followed us, this is being developed right now in clear cell RCC. We did a dose escalation study after a healthy volunteer study and then we went into a variety of expansion cohorts in clear cell RCC. And the first one that will be a focus at this presentation is a 100-milligram cohort. And that's our go-forward dose that we'll be taking into Phase III as well. So we've qualitatively described the data publicly. We've compared [ that ] to the one marketed HIF-2 inhibitor, which is Merck's belzutifan. In terms of our upcoming data, that 100-milligram cohort has just over 30 patients in it. We'll be focused on 3 key end points -- primary -- rate of primary progression, ORR objective response rate and PFS. Now just to set the stage. Those data are out there for belzutifan. They're well defined from its Phase III trial, LITESPARK-005. And I can shoot those numbers at you. The rate of primary progression, which clinicians, by the way, feels an [indiscernible] heel the drug is 33%. So that 33% figure was actually worse than everolimus, which was the control in the registrational study. So that's 1/3 of your patients that never even get -- to really get a shot. The ORR was just around 20% and PFS was 5.7 months. So what should people expect to see from us. We're going to have what's obviously a less mature data set. We're going to have about 10 months follow-up. Also, I'll remind people our patient population is a little bit more advanced than the LITESPARK-005 population, but we'll have ORR data we'll have a rate of primary regression. The rate of primary progression is the one variable that you see earliest, because you know it by the first scan and we've already said we're substantially better than what was observed for belzutifan. And then finally, although we're -- we've got 10-plus months of median follow-up, we will not have a mature PFS, but we will say something about PFS and in fact, we'll also show swimmer lanes. It's going to be a very rich data set. The final point that I'll make about the data set itself is that we have for our dose optimization strategy, we do have a 50-milligram cohort that lagged behind or started after the 100-milligram cohort and it enrolled very quickly and despite not being very mature, it's a very positive data set, and we're going to include some of the information about that 50-milligram cohort, which is another 30 patients, plus or minus. The final point I'll make that's outside of the data set itself is that not only do we feel that we'll have a better molecule, and we believe we will show improvements relative to that belzutifan data set on all 3 of those end points. But our development strategy includes differentiation as well where we think we'll be combining with a better TKI than Merck is. And we also have another study that will be starting where we -- we'll be doing that in collaboration. We haven't announced that yet, and that will take us into a frontline setting. So maybe they'll may come up more in the Q&A, but I'll stop there as a level setting introduction.

Okay. That's great. One point you raised is just the later -- more advanced population. So I was just looking back at my notes. So it looks like in their Phase I/II trial, they had about 71% of patients received both at anti-PD-1 and anti-VEGF agent previously, and their OR, I think, was about 25% of the expansion cohort. So how does your group compared to that 71% if I'm looking back at their...

So for that data set, so that was the Phase I data set -- and so the distinction there, that enrolled both patients that had seen just PD-1 as well as patients in anti-PD-1 and TKI. So the patients that are more relevant to us is that subgroup that saw both prior PD-1 and prior TKI. And you can see there that the ORR for that patient group was, I believe, 21%. So it was a little bit elevated because they did have those patients that hadn't seen both prior PD-1 or prior TKI. The other thing to mention is LITESPARK-005, enrolled only patients that had [indiscernible] 1 to 3 prior lines of therapy. In ARC-20 and in the 100-meg cohort, patients can see any prior lines. And so that included patients that had seen 4 or more prior lines. And we've said previously that we had 25% of patients in that 100-meg cohort that had seen 4 or more prior lines. So those are all patients that would have been ineligible for LITESPARK-005 just based on the number of [indiscernible].

And what is the patients that got both PD-1 and anti-VEGF?

Everybody. So everyone. Yes. So that's why when you look at that LITESPARK-005 data set, really the subgroup to focus on are just those patients that I think both part of PD-1 and TKI.

So it's 100% and then yours is fourth line versus third line.

Right, exactly.

Got it. Okay. So those are the two differences. Okay. Great. And then in terms of the 50-meg cohort that remind us like how much follow-up you'll have in that cohort. And then the reason you included them was because of Project Optimus?

Yes. So we enrolled both a 50-meg and 150-mg cohorts of sort of bookends on the 100-mg cohort that we're -- that's the dose that we're moving forward with as part of aligned with the FDA to address Project Optimus. So that's how we do those cohorts. I'd say the 50-meg cohort is probably going to have half the amount of follow-up, maybe even a little bit less than the 100-meg cohort. As Terry said, the 100-meg cohort. will have about 10 months of median follow-up. So let's say, it will be like 4 months or so for the 50-meg cohort. But that cohort is looking very interesting and is maturing very nicely. So that's why we thought it would be helpful to include in this next data presentation.

Okay. And then what's the remainder of status of the 150-meg cohort?

It just barely have completed enrollment.

Got it. So we shouldn't expect...

No, not until next, we will get that out there next year. I think there's going to be a steady flow of data from our studies, but that just completed enrollment. And frankly, all of these enrolled gangbusters. It bodes very well for our future studies. If we open a new cohort tomorrow, would roll -- enrolling like metaphorically overnight.

Are you worried that the 150-meg if it looks better than the 100-meg and then you're already going forward in Phase III with like how do you kind of balance that trade-off? I guess.

We're very comfortable that the 100-milligram dose is the go-forward dose. I think what actually may be the way this all plays out is that the safety signal is the same across the 3 and there'll be similarities. They're all very meaningful doses. So even 50 milligrams -- if you were to compare from a pharmacodynamic standpoint, it's 2.5 the PD equivalent of belzutifan. And think about belzutifan was good enough to substantially change the standard of care. So we think that we're -- that 150 milligrams is going to be on the asymptote of efficacy.

Okay. Got it. And then remind us on the -- I guess, the Gilead opt-in decision here, like what the -- how much data, what the timing is. And then at least when we read about the debt facility with Hercules. Are there any implications for how to think about that in terms of like funding Phase III development, et cetera, but are those things linked together at all? Or are these two separate?

Totally separate like the debt opportunity was there. We had a few different opportunities that came up, just a lot of interest, and it was there and low cost of capital, so we took the money. So there's nothing to do with the Gilead opt-in, what we think is going to happen there. So we did it because it was low cost of capital, it was there. It extends our runway into mid-2027, potentially beyond, depending on how much of that facility we decided to take down. And then we only took down $50 million as a starting point. And then on the Gilead opt-in decision, we align with them on the amount of data that we need to have in that data package to inform their opt-in decision. Once we deliver that to them, they have, I think, between 50 to 60 days to make a decision. And then as you pointed out, the guidance that we've been giving is that we expect that decision to be made either around year-end or early next year.

Great. Got it. Okay. Anything in terms of -- I mean, they're -- obviously, they have a CMO transition going on, maybe just any implications for you guys there? Is it, again, pretty steady state or just...

It's very steady. So keep in mind, this collaboration has been very broad only getting broader. There's literally hundreds people at Gilead working on these programs operationally, our relationship with Dan and the people deeper in Merdad's organization, those of you who've met Bilal, quite deep and even now a whole lot going on with Johanna is we -- if you transition to TIGIT and starting to think about and prepare for commercialization, co-promotion, et cetera. So our touch points in the organization, our strong -- Merdad's been great, but it's really been pretty seamless, especially from a day-to-day standpoint.

Okay. Great. And again, I guess going back to cas and the PEAK 1 Phase III trial, again, I think you want to elaborate a little bit here on kind of the -- the choice of TKI the design and then anything else you can do to kind of speed up time to market there as, again, given kind of the lead time [ for cas ]?

Yes. So we did disclose on our last earnings call that we are going to be using cabo as a combination partner for our first Phase III study. That Phase III study is called PEAK-1. So very simple design. We'll be looking at cas, plus cabo versus cabo. The reason that we like the idea of going with cabo is, it is the standard of care in the setting that we're going to be pursuing, which is IO experienced clear cell RCC patients. So that's the mix of patients that saw PD-1 in the adjuvant setting as well as patients that saw PD-1 in the first-line metastatic setting and then progressive. So a very large patient population. As I said, cabo is the standard of care, clinicians are super comfortable with using it. We don't have to worry about contribution of components because we're using it in both arms. So for a whole bunch of reasons, that felt like the best choice for us moving forward. But I know earlier today, Mike was up and talked about STELLAR-009 and the decision there. And we're both sort of going in a different strategic direction. So we have a good relationship with Exelixis. We were glad that we had the opportunity to work with them. I'm sure we'll work with them on things in the future as well.

Maybe just because again, I -- back to back all day, so I missed that. What was that just...

For STELLAR-009, so that was the study that we started sort of well over a year ago where we're combining cas with zanza which is our next-generation cabo. So that started several months ago and we decided, as we said that we were going to go with cabo for our first Phase III study. They're focusing on their own studies with zanza. So for those reasons, we just decided to make sense to continue investing money into the study.

Okay. And is there still an opportunity to look forward a different combination as well in the first-line setting. I think that's something you had talked about [indiscernible].

Yes. So we have a plan there, and we'll be able to talk more specifically about that, hopefully, in the next few weeks.

No [ better ] will be happening, yes. Okay. Got it. Okay. And then as we think about like enrollment time lines for this kind of a study, I mean, is it fair just to look back at the Merck trials as kind of a benchmark or a proxy for?

We think maybe -- we'll see like enrollments are always hard to speculate on, but one of the reasons why we wanted to go with cabo, and use cabo in both arms is we wanted to expedite enrollment. There's a lot of interest in the study already. I think we've been surprised by how much interest there is. We've seen how quickly we've been able to enroll our expansion cohorts for cas. As we mentioned at our last earnings call, we already have over 140 patients growing enrolled in that cas monotherapy study, which is only in late-line patients, which was pretty extraordinary. So we're going to do everything we can to get enrolled as quickly as possible.

Yes. Okay. And I guess anything that like, let's say, in the outside chance, Gilead doesn't opt-in? Is there anything that would change in terms of your development program or time lines? Or is that something that would be seamless in the event that they don't opt-in?

Totally seamless. So both the casdatifan-cabo study has been built into our plans, presuming no opt-in in this frontline study also built into our plan. And frankly, there's been other inbound interest in the program, and it's something also that given the opportunity there and the strong, strong validation, we love to have Gilead opt-in. It brings operational and capital contributions. But -- and we tend to like basically -- as a default once Gilead opt-in to everything. But if I had to pick one, than we'd be comfortable executing a loan with 100% validated drug target and a very clear and straightforward -- as it gets pathway to commercial this would be it. But we think we're all set in either scenario seamless.

So if they don't opt-in, would you guys more likely take this forward solo? Or would you entertain those other inbound discussions?

I think we would definitely at least consider those, but it's one where we've obviously thought about and received all kind of inbound from various external constituencies about like, wow, wouldn't you guys like to take that forward yourself? It might be smarter still. They have a partner. We'd have to consider exactly how that would play into things. But basically, the plan as it sits right now is all set with [indiscernible].

Okay. Got it. Okay. Great. maybe I don't know anything else on cas. We didn't touch on before you go over to dom.

No.

Okay. So on dom and the whole TIGIT hypothesis, there's obviously been some updates from some of your competitors on their programs on the Roche side and the Merck side, both relating to efficacy and then tolerability in some cases. So just remind us kind of differentiation of your asset? And then what gives you guys and Gilead the confidence to continue to kind of move forward and invest aggressively behind the assets?

So we honestly couldn't feel better about where things stand right now, both based upon our own internal data set as well as what's been happening externally. And largely, a lot of that relates to the differentiation between the FC-enabled anti-TIGITs outside of Arcus and then dom, which is the only FC-silent anti-TIGIT in later-stage development. And our primary confidence comes from our own internal data. So first, I'll mention ARC-7 data, which was the data set that we presented some time ago in frontline, high PD-L1 non-small cell lung cancer. One new piece of information is that we are submitting an abstract. So we have now matured data from the first part of what we were calling ARC-10, which was high PD-L1 Phase III study that for strategic reasons, we terminated in favor of the PD-L1 all-comer Phase III study, STAR-121. But we had 100 patients from that early study broken out as 40 patients on dom zim, 40 patients on zim and 20 patients on chemo. And we're submitting an abstract to share those data. It's a rich data set. It's a good data set. It's going to be a very positive data set for anti-TIGIT. It will be positive data set for Arcus as well. So I would say it's even a stronger data set than the ARC-7 data set. And it's with 2 years of follow-up, and we will have OS for both dom zim and zim and we'll have hazard ratios as well. So I think you'll be able to tell a lot from that study about anti-TIGITs. So that's the first piece.

With that, just one follow-up there because I remember when ARC-7 and people were -- there's a lot of hand-wringing over the kind of control arm performance and things like that. So do you think this will alleviate those questions?

I think that dom zim will look quite good. And I think zim will not only look good in terms of how it compares to dom zim, but when people do what we don't recommend doing, but when they go and compare across trial, there will be no hand-wringing about zim's performance as an anti-PD-1 as well. Coming back to our other data that gives us extraordinary confidence is the EDGE-Gastric data. That's in the upper GI cancers where we just reported out 13 months median PFS that -- I'll remind you the standard there is nivo chemo that has PFS on the order of 7 months. We'll be reporting out later next year, OS data for that study. And I can tell you, with 18 months of follow-up, more than well over 50% of the patients who are still on study. And keep in mind, OS for the standard of care there is 13 months. Now those are our near-term data. ITOC has a data set coming out in high PD-L1 lung. We expect given that they started a Phase III study and that was together with [ Glasko ] that that's going to be another positive data set. AstraZeneca has recently shared early data with the bio-specific anti-PD-1 anti-TIGIT where an anti-TIGIT is Fc-silent that look quite positive. So we think the data supporting efficacy looks awesome. And then coming to your point about the negative releases that were put out by Merck and Genentech, we think that fits right into what we've been discussing all along, the T-reg depletion associated with the Fc-enabled anti-TIGIT and the corresponding induction of immune-associated AEs. And while none of the 3 data sets, so let me remind you what they were, Merck put out a press release about their Phase III adjuvant melanoma study. They put out a press release about their small cell lung cancer study and Genentech had 1 relating to their PD-L1 all-comer non-small cell lung, which was atezo, tirago and chemo. Now interestingly enough, that study suffered from another confounding issue in that their control arm was KEYTRUDA. So in the absence of data, it's tough to tease out just everything that was going on there. But what I'll note is that in the Merck releases on each of those studies, they pointed out that they had issues with immune AEs in the study arm that was causing disproportionate dropouts and affecting efficacy. Keep in mind, Merck is doing a co form of KEYTRUDA plus Vivo. So if they see in the AE, they have to take the patient off of both drugs. So we think our strategy of the Fc-silent anti-TIGIT and we'll ultimately be doing a co-administration not only giving flexibility, but that's not only better from a safety standpoint, but that safe translates into proved efficacy because you're not losing patients due to -- so that part of the differentiation, we think we're feeling really good about. And in fact, I would just point out that since I was talking about EDGE-Gastric, the upper GI cancer study, the corresponding Phase III study called STAR-221 was fully enrolled over 1,000 patients as of the end of June. And the way this is playing out, it's not inconceivable that, that could actually represent potentially the first anti-TIGIT approval, given that in the GI setting, the standard of care has an OS on the order of like 13 months versus in non-small cell lung cancer where you're in 20-plus months. So we're really excited about the entire field. And we know that to show me to the investor community, but we feel like we're very well positioned to do well. And I think the ARC-10 data will inspire confidence in everybody in both the mechanism in dom [indiscernible] as a best-in-class anti-TIGIT.

Great. What -- just remind us, have you said where is ARC-10 venue going to be different from the cas venue? Or are they going to the same venue?

It will be different.

This will be different, but we're -- we're just admitting the abstract as we speak.

Okay. Got it. Okay. But that's still the ARC-10 is still by year-end?

Yes. The year-end. This by year-end.

Okay. Okay. Got it. And then one other question just on the STAR-121 Phase III lung cancer trial, that's your all-comers trial you talked about. Just -- any update on kind of enrollment progression and how to think about timing of data there?

As of right now, it's fully enrolled. We haven't said anything about timing. We believe that at this point, still for [ people ] they can do their own back calculations given what's known in that setting. That's a PD-L1 all-comer.

Okay. All right. And the control arm there is KEYTRUDA?

So the design there, it's KEYTRUDA chemo versus dom zim chemo. And we also have a 1 to 4 zim chemo to just provide a qualitative comparison between zim chemo and KEYTRUDA chemo in the same study.

Okay. And you haven't -- I mean, assume like all oncology trials it has an interim built into it? But I guess, you're not going to comment?

Yes, I'm not going to comment. Yes.

Okay. All right. All right. So stay tuned. Okay. All right. The other one you mentioned on -- I guess there's a lot to unpack there. But just the co-formulation, I mean, again, I hear your point on the discontinuations due to immune AEs. But how do you think about the kind of commercial, like, let's say, both products get to market ultimately in lung cancer, all-comers, what are kind of puts and takes of co-formulation versus a separate 2-vial strategy?

From an administration and convenience perspective, that's the only thing that really matters. They end up in pretty much the same because what we'll end up doing is we will co-package them, and then they will move mix into the same vial. So like from a patient perspective, the amount of time that they're actually spending the chair, which is most important, it shouldn't be much different, if at all. So we actually don't think there's much difference. We actually done a lot of research early on as we were trying to figure out if we should go co-form or co-admin or what our strategy should be. And the feedback that we got from payers that they actually don't like the co-form because they see co-forms for exactly what they are, which is extending the patent life of a drug that's lost [ or ] patent life. So for all those reasons, we decided to go the co-admin route and I feel very good.

I mean the other piece about that is the physicians also prefer that because obviously, it gives them the flexibility with both agents in terms of if they want to titrate one or the other.

Yes. Okay. Okay. Understood. One other just on the kind of commercial side. There's obviously a number of other agents in late-stage development for lung cancer now in terms of TROP2, [ B6A ], you mentioned the AZ bio-specific. So as you think about that market, is this likely going to come then, I guess, even LAG-3 now, Bristol [indiscernible]. So how do you think about like fragmentation of that market? And where does TIGIT kind of fit into that kind of landscape?

And we probably saw TROP2 was more of a threat a year ago like everybody. And I think based on everything that we're hearing today is I think the expectation is a lot lower that TROP2 will move into frontline or will be heavily used in frontline, but there'll probably be more of a second line treatment option. LAG-3, TBD, and have seen zero data in frontline LAG. I think I forgot what BMS' strategy is I think is to go [indiscernible]. Yes, I don't know how they came up with that grouping. But there's nothing on the horizon at this point that we see as being like a huge competitive there. I think the ADCs were probably the things that we were keeping the closest on. And then KRAS will keep an eye on as well, although I think it's still, again, like TBD as to whether or not KRAS inhibitors can be able to combine with chemo and then if they're active enough on their own or they can actually displace chemo. So we actually feel, I think, better and better about our competitive position, not just versus other modalities and other mechanisms of action. But even within the TIGIT field. I think A year ago, we felt like Burke was a big threat and a big competitor, and I feel like every day that passes, we feel probably more and more confident with where we are and that we may even have a shot to be first to market now in [ lung cancer ].

One comment I would add to that when -- obviously, we all know that cancer is all about efficacy and safety is relevant, but it is about efficacy. But when you think about dom, when you're going on top of anti-PD-1 chemo, you're essentially bringing no additional bags. So you're taking something -- anti-PD-1 chemo is really good in frontline non-small cell lung cancer, and you're going to be enhancing that. So we feel that's a very good value proposition across the broader feel really good place to start with the KEYTRUDA chemo being so entrenched.

Yes. Okay. Okay. Got it. And I guess one other one in lung is the -- I guess, there's this Phase II VELOCITY-Lung Study that [ Gilead ] is conducting like of...

They're operationalizing that -- paying for that.

So you guys don't have visibility in terms of that data?

And we don't have window. I mean we're kind of hearing year-end.

Okay. Okay. But that's a Gilead run study? You don't have access to the data then real-time?

We do not see that data real time. We're not paying for that study.

Okay. Okay. Understood. All right. Then maybe just topping back to gastric. So Terry mentioned the 221 study that could be the first TIGIT approval here. So maybe just, again, remind us of the commercial opportunity in gastric kind of how to frame that out here? Obviously, we know lung really well, but gastric is maybe one of those that's more a little bit below the radar?

Yes. So it's about 27,000 patients in the U.S. alone and then obviously, much bigger when you go outside the U.S. So we think that translates into about a $3 billion market, maybe more. The other interesting thing since there's an upcoming AdCom just to talk about greater than [indiscernible] et cetera. The gastric cancer space is much more heavily skewed towards PD-L1 or CPS greater than 5 and greater than 1. So somewhere between 40% to 50% of the patients or CPS greater than 5, probably 80% or CPS greater than 1. So CPS greater than 1 captures a very, very significant portion of that patient population, that $3 billion-plus patient population.

And that's that you're enrolling CPS over 1?

So it is an all-comer study. And then as a reminder, we're doing dual primary endpoints. So we're looking at CPS greater than 5 and then we're looking at all-comer -- so if we hit on either of those endpoints, we win. And if we hit 1 endpoint, we can also roll the alpha over to the other endpoint, which is nice. So it's a really well-designed study. As we talked about earlier, over 1,000 patients enrolled, so very well powered. [indiscernible] about the opportunity, there's really nothing from -- sadly for patients other than the anticodons. There's really nothing else out there from a competitive standpoint.

There's no other registrational trial ongoing in the anti-TIGIT speciality.

Okay. Maybe in the last minute, just anything else in the pipeline that we should have on our radar before the end of the year?

I mean really in the year, we're trying to keep everyone focused on cas and dom, those are going to be the 2 big readouts outs. So starting to get a few months with the cas. Cas year presentation, which is going to have a lot in there. We're super excited about that. Also very excited about the dom presentation. And then next year, there will be a lot more cas cash data to come since we start to read out from these additional cohorts. So those are the big things to highlight. And quemli, we'll start the Phase III study there, by the end of the year that we'll also enroll very, very quickly, just a huge amount of interest in the study, not a lot out there in pancreatic cancer. And then just the next program to keep an eye on will be AXL. We also have a poster coming for AXL program also at an upcoming conference. And then that will start moving into expansion cohorts next year. So that could be more cas like just in terms of getting sort of earlier signs of efficacy and faster path to a Phase III study.

Okay. Great. Well, thank you so much, Terry. Jen. I appreciate it.

Appreciate it. Thank you.